Lord King blames Bank for inflation crisis

Lord King warns that Covid money-printing spree and low interest rates were major errors

The Bank of England has made “serious mistakes” in the fight against inflation and is facing a prolonged bout of painful price rises unless it acts immediately, Lord King of Lothbury, its former governor, has warned. The Bank fuelled a surge in prices with a money-printing spree during the pandemic, the crossbench peer said. The idea that the current 1 per cent interest rate will have any significant impact when inflation is running at 7 per cent is “really very strange”, he added.

THE Bank of England has made “serious mistakes” in the fight against inflation and is facing a prolonged bout of painful price rises unless it acts immediately, Lord King, its former governor, has warned.

Officials at Threadneedle Street fuelled a surge in prices with a money printing spree during the Covid pandemic, the crossbench peer said.

The idea that the current interest rate of 1pc, very low by historical standards, will have any significant impact when inflation is running at 7pc is “really very strange”, he added.

Andrew Bailey, the current Governor, is under growing political pressure for failing to prevent the crisis, and is now being scrutinised for his decision to allow staff to attend the office for just one day a week.

The Bank’s long-term target is for just half the working week to be spent in the office, The Daily Mail reported.

The revelation follows claims by Mr Bailey to MPS this week that he feels “helpless” to combat soaring inflation fuelled by the war in Ukraine.

Liam Fox, the former Cabinet minister, said: “It seems strange that in an inflationary crisis, so few key personnel are attending their place of work.”

The comments came as a dramatic fall in the number of people looking for work stoked fears that Britain is on the brink of an inflationary spiral amid surging pay growth and intense competition for staff.

Speaking to Andrew Marr on LBC, Lord King, who ran Threadneedle Street during the financial crash, said the current price surge is not something that can be fully prevented.

Although inflation is likely to drop in 2023, he said it may take many years to fall back to the Bank’s stated 2pc target.

Asked whether the Bank of England had committed an error, Lord King said: “Central banks around the world have made serious mistakes in not acting much sooner. Including ours.

“Central bankers around the world are very confident that inflation will simply fall right back to the target.

“But when people come to set prices or bargain for wages, they won’t necessarily assume that inflation will come straight back down to 2pc.

“The idea that interest rates of 1pc are going to have much impact is really very strange. They have to give a very strong signal they’re determined to get on top of the inflation problem.”

Meanwhile, official figures showed that businesses are attempting to fill a record number of vacancies by offering the highest pay rises for decades, but 7.1m people on the sidelines do not want a job.

Economists are concerned that sharply rising wages will drive prices higher in a self-sustaining inflationary boom, seriously undercutting living standards.

A record 1.3m job vacancies were on offer in the three months to April, the Office for National Statistics said – a

‘Central banks around the world have made serious mistakes in not acting much sooner. Including ours’

higher number than the 1.26m people unemployed and looking for work, the first time there have ever been more positions advertised than job seekers. The jobless rate dropped to 3.7pc in March, its lowest since 1974.

Businesses responded by ramping up pay, with average earnings in March 9.9pc higher than they were a year earlier, in large part because of extra bonuses.

This is the biggest pay rise in records dating back 20 years and means incomes climbed faster than the 7pc inflation rate in March.

But the increase was still not enough to tempt some people not looking for a job to go back to work. There were 7.1m people aged between 16 and 64 who did not have a job and did not want one in the first three months of the year, the ONS found, an increase of 585,000 since the pandemic struck.

A surge in the number of people classed as economically inactive means the workforce has shrunk by almost 2pc

since early 2020. In the first quarter, the country put in 11m fewer hours of work than two years earlier.

Businesses are holding on to as many workers as possible, with 70,000 redundancies in the three months, the second lowest figure on record.

Political pressure is building as a Yougov survey showed almost three quarters of voters think the Government is handling the economy badly,

‘Really, it wasn’t clear that the economy was out of the woods until very late last year’

including more than half of Tory voters.

A Downing Street spokesman said yesterday that it was up to Mr Bailey to “justify” his description of food inflation as “apocalyptic” earlier in the week, and Brandon Lewis, the Northern Ireland Secretary, said he “was surprised to see that particular turn of phrase”.

The Bank of England was unable to spot the threat last year as Covid policies obscured the economy’s usual workings, economists said.

Philip Shaw, chief economist at Investec, said: “Really, it wasn’t clear that the economy was out of the woods until very late last year.”

At its late September meeting, the last where a rate increase was off the cards, officials were still waiting to see what would happen when the furlough scheme – which had around a million people on it – finally wound down that month.

Economists widely expected a rise in unemployment. Mr Shaw said: “It didn’t happen [but] it was impossible to see that until the figures came through.”

Last week, Boris Johnson warned that people working from home were liable to get distracted.

“My experience of working from home is you spend an awful lot of time making another cup of coffee and then, you know, getting up, walking very slowly to the fridge, hacking off a small piece of cheese, then walking very slowly back to your laptop,” he said.

Despite this, the 3,000 Bank of England staff are only required to be at the office once a week. From June 6, they will be told to pitch up 40pc of the time. After this, the Bank has said it will aim to get workers back for half the week.

A restaurant boss near Threadneedle Street told The Daily Mail he used to book a table for around 40 people once or twice a week before the pandemic. “Now, maybe it’s once or twice a month,” he said.